2024 (7) TMI 119 - HC - Companies Law

Seeking declaration that the sale agreement dated 5th September, 2007 is not affected by Section 536 (2) of the Companies Act, 1956 and to ratify the said sale - It is the case of the Applicant that the said company did not inform the Applicant of the filing of the winding up petition nor of any order of admission or of winding up and the Applicant came to know of the same only in the year 2011 - HELD THAT - Pursuant to Section 441 of the Companies Act, winding up of a company by Court shall be deemed to have commenced at the time of presentation of the petition which in the present case would be 25th August 2003. It is also provided under Section 536(2) of the Companies Act that in the case of a winding up by a Court, any disposition of the property of the company made after the commencement of the winding up shall, unless the Court otherwise orders, be void - the jurisdiction vested is equitable and is meant to be exercised as such. If even bonafide transaction for a consideration would not be protected, then the company, only by the fact that the process of winding up has started, would benefit itself by unjust enrichment. Such a result is clearly to be avoided while exercising power under the said provision. In the case of Pankaj Mehra and Another vs. State of Maharashtra and Others 2000 (2) TMI 718 - SUPREME COURT , the Hon'ble Supreme Court has considered the impact of the legislative direction in Section 536(2) that any disposition of the property of the company made after the commencement of the winding up shall be void. The Hon'ble Supreme Court has observed that there are two important aspects first is, that the word void need not automatically indicate that any disposition should be ab-initio void. That, the legal implication of the word void need not necessarily be a stage of nullity in all contingencies. The Hon'ble Supreme Court has observed that the manner in which the word void has been employed in Section 536(2), the same means voidable. In the facts of the case, the Applicant has conducted its due diligence before entering into the sale agreement dated 5th September 2007, has paid the entire consideration to the company in liquidation and the sale agreement is duly registered after obtaining permission from the MIDC and confirmation of no dues from Bank of Baroda and has also settled the dues of the petitioner in the winding up petition - The transaction is not only bonafide but also fair, just and reasonable and deserves to be protected. The sale agreement dated 5th September, 2007 being a bonafide transaction is ratified - application allowed.

Issues Involved:
1. Validity of the sale agreement dated 5th September 2007.
2. Applicability of Section 536(2) of the Companies Act, 1956.
3. Rights of the Official Liquidator regarding the property.
4. Claims from creditors and workers of the company in liquidation.
5. Jurisdiction of the Civil Court to adjudicate the matter.

Detailed Analysis:

1. Validity of the Sale Agreement Dated 5th September 2007:
The Applicant sought a declaration that the sale agreement dated 5th September 2007 is valid, subsisting, and binding. The Applicant argued that the transaction was bonafide, conducted in the ordinary course of business, and for valuable consideration. The sale agreement was duly registered, and the entire consideration was paid. The Applicant also invested substantial sums in the property and mortgaged it to raise finance. The Court found the transaction to be bonafide, fair, just, and reasonable, deserving protection.

2. Applicability of Section 536(2) of the Companies Act, 1956:
Section 536(2) states that any disposition of the property of a company made after the commencement of winding up shall be void unless the Court orders otherwise. The Applicant argued that the transaction was bonafide and in the company's interest, thus should not be void under Section 536(2). The Court noted that the provision is an enabling section allowing the Court to validate transactions that are bonafide and in the interest of justice. The Court cited precedents, including S.P. Khanna vs. S.N. Ghosh and Pankaj Mehra vs. State of Maharashtra, to support the view that bonafide transactions should be protected.

3. Rights of the Official Liquidator Regarding the Property:
The Official Liquidator opposed the application, arguing that the sale was void ab-initio as it occurred after the presentation of the winding-up petition and without the Court's leave. The Liquidator claimed that the company had no right to sell the property during the liquidation proceedings. The Court, however, found that the Applicant had conducted due diligence, obtained necessary approvals, and paid the full consideration. Given the bonafides of the transaction and the absence of any claims from creditors or workers, the Court ruled in favor of the Applicant.

4. Claims from Creditors and Workers of the Company in Liquidation:
The Official Liquidator had not received any claims from creditors or workers. The Applicant had settled the dues of the petitioner in the winding-up petition and obtained a no dues certificate from Bank of Baroda. The Court noted that there were no outstanding liabilities against the company in liquidation, reinforcing the bonafide nature of the transaction.

5. Jurisdiction of the Civil Court to Adjudicate the Matter:
The Official Liquidator filed an application for rejection of the plaint in the Civil Court under Order VII Rule 11(b) and (d) of the CPC, arguing that the Civil Court had no jurisdiction to deal with the matter. The Civil Court rejected the plaint on these grounds. The High Court, however, proceeded to adjudicate the matter, emphasizing its discretion under Section 536(2) to validate bonafide transactions.

Conclusion:
The High Court ratified the sale agreement dated 5th September 2007, declaring it valid and not affected by Section 536(2) of the Companies Act, 1956. The Court issued a permanent injunction restraining the Official Liquidator from disturbing the Applicant's possession of the property. The Court found the transaction to be bonafide, fair, just, and reasonable, with no outstanding claims from creditors or workers, and thus deserving protection. The request for a stay of the order was rejected.

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